Tin Hat Time Again

Discussion in 'Market Commentary' started by SimonDenham, Jul 6, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    At one point this morning it looked as though the markets were going to really come a cropper as the FTSE, DAX Dow etc were all being called substantially lower than where they actually opened.

    Sterling hit 1.2795 overnight off another 250 pips as Asia hit the panic button but has since bounced back to just under 1.3000 and bulls (are there any?) will be hoping that the spike lower in the small hours was the final blast of the gale that has smashed Sterling valuations across the board.

    Reading the various newspapers this morning and listening to the Financial channels one might be excused for thinking that a major war had been declared somewhere on the globe. The overall negativity seems worse than at the start of the year when analysts were warning us to ‘sell everything’ and is comparable to the writings of the 2008/09 financial crisis. It might be pertinent to remind readers that the only thing (on the planet) that has changed has been that the UK has removed itself (possibly) from a trading bloc. Even if the country had been engulfed in cataclysmic disaster it would ‘only’ represent 3.8% of world trade.

    Even the worst forecasts have the UK only entering a mild recession (which, to be honest, we were probably going to do anyway). Debt costs have now fallen to historical lows (indeed if it were possible to reissue we could finance the entire debt pile of the UK at less than 1% for the next ten years) so the pressure on state finances is substantially lower than might have been expected.

    But in the end standing in the way of a speeding train is generally not good for your health so buyers are likely to remain on the back foot for the time being.

    Economic Data

    Yesterday’s numbers were pretty much in line with expectations (actually marginally better) but today we once again have very little to go on as we push towards the NFP at the end of the week.

    We have already seen the German industrial orders number this morning which has come in flat but that is about the limit of info for today. Wed o have a minor US PMI number due at 14.45 which is likely to be marginally better than last month’s 51.3 release.

    Indices

    FTSE

    Whilst the Dax and the Dow suffered throughout the session the FTSE held steady as the foreign currency earnings in the top 100 trumped any overall weakness in index.

    As mentioned yesterday this is a dangerous assumption as weak currency effects tend to be temporary.

    Support is at 6485/95 and 6440/50 then 6370/80

    Resistance is at 6620/30 then 6675/85 and 6745/55

    DAX

    Unlike the FTSE the Dax is struggling and, as we commented yesterday (and the day before), the index is in all honesty not looking happy. We are now 400 points off the bounce back highs and we are not seeing much in the way of buying at the moment. At some point investors will decide that there is good value to be had especially with German bond yields now negative all the way down the curve to the 10 year… even the 30 year is only giving 0.3%.

    Support is at 9420/30, 9370/80 and 9200/10

    Resistance is at 9665/75, 9805/15 then 9840/50 and 9945/55

    Dow

    US markets have struggled once more to make headway at 18000 although this time you can at least say there is an outside influence which is dragging them back. Deutsche Bank has chosen this morning to state that Fed hikes cannot be discounted and whilst they may be right the market certainly does not think so. Eurodollar futures are indicating virtually zero chance of a rate hike until 2018 and even post this date they are only marginally pricing in some Fed action as I suppose we must indicate some risk of action over the next 2 to 3 years.

    Support at 17780/90, 17730/40 and 17610/20

    Resistance is at 18050/60 18150/60 then 18300/20

    Currencies

    Euro

    The Euro is off a little from yesterday’s levels and we are back in the 1.10’s. As mentioned before the cross seems reasonably happy in this region and it is tough to see why it should fall much further until there is some real information justifying such a move.

    Support is at 1.1005/15 then 1.0970/80 and 1.0890/00

    Resistance is at 1.1165/75 and 1.1245/50 then 1.1315/25

    Sterling

    As mentioned early yesterday morning “We are now at the lowest point since the exit vote and (frankly) not looking much like stopping here”.

    In the event the currency fell 2.5 cents through the day and continued overnight to drop another 2.5 cents. As mentioned earlier we have bounced back but as I write the bears are coming out to play again.

    Support is at 1.2930/40, then 1.2780/90 and 1.2650/60

    Resistance is at 1.3145/55, 1.3230/40 then 1.3345/55 and 1.3570/80

    Gold

    Renewed weakness in equity markets continues to drive the metal higher and it is hard to imagine that there are many shorts left. We are just under our major resistance level at 1372 but other resistances have failed to hold the rally so it would be asking a lot for this one to be any different.

    Support at 1355/57 1346/48, 1320/22, 1312/14

    Resistance is at 1372/74 and 1386/88

    Oil

    In the end Oil dropped a couple of dollars yesterday with traders looking around and seeing little to inspire a rally. The Dollar continues to rise in value and fears of a global slowdown spiral so oil falls in sympathy.

    As with all the other markets it is tin hat time and not a day to get involved.

    Support is at 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 51.70/80 and 52.05/15
     

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